Reviewing Stock Market Valuation Indicators

One reason I’ve greatly reduced the time spent listening to the financial cable channels is that guests and hosts make a lot of statements that aren’t backed by or even are contradicted by data. Consider arguments about what influences stock prices. On any day you’ll find a range of people who say stock prices follow earnings, or interest rates, or GDP, or a range of other numbers. None of them are accurate, except over the very long term. Consider this excellent post. It compares all these and other data points to stock returns over different periods. Then, it offers some observations from the data, none of which you’re likely to hear in the financial media.

You can’t just blindly follow any single market or economic indicator and assume the future will follow the same path.

Yet knowing what has happened in the past can prepare you for future periods of over and underperformance in stocks and bonds.

The following table shows the average dividend yield, company earnings growth and performance of the S&P 500 by decade along with economic growth, inflation, average interest rates and the 10 year treasury returns